(FORTUNE Magazine) – Bill Gates wants to sell you $10 billion worth of software. Maybe not you personally, understand, but that's his measure of what the small-business market will be worth annually to Microsoft by the end of the decade. Which helps explain his optimism these days, despite renewed complaints that his products are sometimes virus-prone and less than reliable. "I am so excited about what we're doing for small business," a cheery, relaxed Gates told FSB's David Lidsky and David Whitford during an exclusive interview in Microsoft's new Manhattan sales office. Okay, we're excited too. Or we could be. Microsoft's plan to digitize a full range of business services and deliver them over the Internet holds great promise for small business. But first we had to know: Has the world's richest man forgotten where he came from?

Can you still remember what's it like to be a small-business man?

I'm not that old! Some of the funnest days were when I knew everybody and essentially had my hand in all the different things going on. Writing a lot of the software, doing most of the sales, accounting, tax, all the various things that had to be done.

Is there some key nugget from the early days to which you attribute the success of Microsoft?

We had three things that really worked for us. One was our vision, which has not changed since the day the company started. Microsoft was a dream [co-founder] Paul Allen and I had about what software could become--the idea that you could buy PCs from many different hardware companies, and yet they would all run the same software. That meant a complete restructuring of the computer industry. We knew we were onto something important.

Our second key would be the people we hired. We hired very smart, capable people. We had a little bit of a blind spot in that we always thought that smartness was fungible into whatever needed to be done, because a few of our early employees were like that. "Go learn legal, go learn finance, go learn sales! Okay, I'm sending you to Japan tomorrow--tell me how it works over there!" Later that became something that surprised us--that a lot of very capable people were very, uh, specialized in terms of their abilities. As we tried to move them into a new area, they weren't as effective.

And then the third thing was that we did take a long-term approach. We weren't trying to just go public and get rich. There was no near-term thing. It always was this many-decades thing where there were no shortcuts, and we'd sort of put one foot in front of the other.

Was there a we're-not-in-Kansas-anymore moment when you realized, gee, this is really going to be huge?

It was when the IBM PC came out, for which we'd done all the design and software. We had been working night and day for a year and a half to get that done, and it was a phenomenal thing. One thing that's weird, you never can assess your own success. But you can see other companies being successful because they bet with you. You go to an event, and one of your partners might say, "Yeah, I employ 20 people, thank you." That really makes you feel incredible.

A lot of people start businesses with the idea of being successful, cashing out, and doing something new. You could have gotten out long ago. Why do you keep going?

When you start a business, you're going to have a goal. For some people that's a financial goal--nothing wrong with that. For some people it's a goal about a particular thing they want to build. For Paul and me, it was a dream of what the personal computer could become as the ultimate empowering tool. We didn't think we'd make a lot of money. Of course, we did make a lot of money. But we had very modest views of how big the company would be.

We saw the PC, even though it was quite humble in the early days, as something that would grow because of the magic of chips, the magic of software--that would become the fundamental tool for how information workers get their job done. We're certainly not all the way toward having achieved that vision. If we'd managed to make a perfect personal computer, I'd have to say, "Oh, gosh, what do I do now?" But we're not there yet. I'm hopeful that in the next ten years we will actually achieve most of what I dreamed about as a kid. I think we're on the path to do that.

Do you see your children becoming entrepreneurs like you?

I'm going to be very neutral in terms of what they choose to do. If they want to go into the technology industry, though, I'd ask them several times whether they really want to be in the same thing I was in, because of the weird expectation thing there. They'll probably end up doing something different. If they chose to be doctors or artists or start their own businesses, that would be fine. I want them to feel as if they can take risks, that there's a safety cushion--but not so much of a safety cushion that they don't have to go out and do something. That's a hard balance to strike.

If you were starting a business now, what would it be?

In terms of mega-home runs, those are always few and far between. I think biotechnology is an area where geniuses starting up today can do great things. Another area is understanding how information technology is making the world a more global place. The labor market that used to be extremely local in nature is now very global. That's scary. It also represents opportunities for people who understand it and think about, "Okay, where are the best people of different skills? How do you get them to collaborate?" It's when you have dramatic change like that that you have opportunity.

What can Microsoft do for small business?

Making our software simpler will probably have more dramatic impact with small business than anywhere.

Companies like Dell, FedEx, and Staples have found a way to serve small business and be loved by customers. Why don't people feel that way about Microsoft?

Well, if you give people a list of companies and say, "Who do you admire the most?" Microsoft comes out on top of that again and again.

Do you think that's admiration or respect?

Either one. Any survey I've ever seen, we come out on top. Now people are using our software every day, and they know that in terms of security and simplicity, we can do better. The fact that they expect more from us--that's a good thing. I love that framework. They expect a lot; we have to do a lot. We need breakthroughs that are going to motivate small businesses to move up and use the next generation of software. If we really come through on that, hey, we'll get a little bit of a licensing fee from each small business. But there are enough small businesses to create a substantial business opportunity for us.

E-mail FSB at fsb_mail@timeinc.com.